Fundamental research (analysis) of a business includes analyzing its financial report & health. Its control and aggressive advantages, and its opponents and markets. . When used to commodity and forex, it concentrates on the overall state of the economic climate, production, earnings, interest rates and management. When analyzing a stock, currency or futurescontract using fundamental research but there are two types …
1. Bottom up analysis
2. Top down analysis
Fundamentals analysis is one of the two main methods for analyzing a stock potential return. Fundamentals analysis involves assessing a corporation's financial history and current standing, including earning and sales etc.
there are so many other ratios that one has to look at when analyzing the stock they are;
P/E ratio or price earnings ratio- this is the company’s total market capitalization(market cap) dividend by its total earnings for the last 12 months. In other words, it is the price paid per share relative to the company’s earnings per share. It is always a figure like 10 or 74 etc
Market capitalization.- This is not exactly a ratio. It is the product of the number of shares in the hands of investors and the current market value of each share. This ratio is used in categorizing companies by their size ie, small cap, mid cap and large cap companies
Assets turnover- net sales or revenue divided by total assets, used to see how well the assets are used to make money for the business and so the higher this figure the better
Return on assets- net income dividend by the end-of-year total assets and then the figure multiplied by 100 to make it a percentage
Return on equity- calculated by dividing the financial year’s after tax, after preferred stock dividends and before common stock dividends income by the book value. The bigger this figure and the faster is it growing the better because it means that the company is becoming more efficient with available resources
Return on capital invested[ROIC]- calculated by (net income after taxes)/[total assets-cash in hand-non interest bearing liabilities]. It is another efficiency test for the company
Current ratio- simply current assets divided by current liabilities. It is used to measure a company’s liquidity and its short term financial strength, it will look something like 5 or 5x meaning that the current assets are five times the current liabilities
Coverage ratio- the number of times that a company’s expense is covered by the earnings
Interest coverage- used to measure the company’s ability to pay interest on outstanding debt like corporate bond interest etc. Equal to [earnings before interest and taxes for a fiscal year]/interest payments for the same period. The higher this figure the better because it will mean that the revenues very easily cover their financial obligations n times over
Total debt/equity or gearing ratio. This measures a company’s stability. It is equal to total liabilities of the company/total shareholder’s funds. The higher this ratio the more the interest payments the firm is to pay in future as it means that the company has borrowed a whole lot of money.
Working capital per share- this measures a company’s liquidity. Calculated by subtracting current liabilities from current assets and then dividing the answer with the total number of shares outstanding (shares in the investors hands)
Earnings per share- total profits of a company divided by the total number of the company’s shares. In most cases, if this figure is growing it means that the company is growing. But investors are warned in financial books not to base their investing on only this value and that it should not be so high.
Dividend per share- total dividends paid to shareholders for the previous financial year dividend by the number of common stock outstanding
Book value per share- a company’s book value divided by the number of shares outstanding. BTW the book value is a company’s total assets – total liabilities-intangible assets like goodwill
Cash flow per share- operating cash flow- preferred stock dividends and the answer is dividend by the total number of shares outstanding
cash per share- indicates the amount of cash in the firm as compared to the number of shares outstanding. Calculated by [cash + marketable securities]/number of shares outstanding
Dividend yield- this is calculated by dividing the total dividends paid out by the current price of the stock
Dividend payout ratio or payout ratio- ratio of dividends paid out by the company to the company’s earnings in a financial year
Pre tax profit margin- net profit before taxes divided by net sales
Total debt/ total capital ratio- this one shows the proportion of a company’s debt to its total capital. It is used to measure the company’s capital structure and financial solvency
Leverage ratio(assets/equity)- this is the total assets of the company divided by the total shareholders equity. It is a measure of the company’s leverage ie the degree of utilization of borrowed money. Highly leveraged company’s place themselves in a bad place like danger of receivership or bankruptcy if they cannot pay their debts
Other key pieces of information include
Float- this is the total number of shares of a company that are available for the investing public
Shares outstanding- number of a company’s shares that are in the hands of investors
Sales(both domestic and foreign)- the amount of money in whatever currency that the company has made is selling it products
Research and development as a percentage of revenue.- Research and development in a company uses money so this ratio tries to measure the amount used in R&D as compared to revenues in a financial year.
Gross profit margin- calculated gross profit/sales *100=x% meaning that for every dollar(rupee, shilling, peso euro whatever)generated in sales, the said company has 20 cents left to cover basic operating costs and profit
EBITDA margin- the initials mean earnings before interest taxes depreciation and amortization. It is used to measure a company’s operating cash flow using its financials like the income statement and the like. It is calculated by adding depreciation and amortization back to pretax income
Market capitalization.- This is not exactly a ratio. It is the product of the number of shares in the hands of investors and the current market value of each share. This ratio is used in categorizing companies by their size ie, small cap, mid cap and large cap companies
Assets turnover- net sales or revenue divided by total assets, used to see how well the assets are used to make money for the business and so the higher this figure the better
Return on assets- net income dividend by the end-of-year total assets and then the figure multiplied by 100 to make it a percentage
Return on equity- calculated by dividing the financial year’s after tax, after preferred stock dividends and before common stock dividends income by the book value. The bigger this figure and the faster is it growing the better because it means that the company is becoming more efficient with available resources
Return on capital invested[ROIC]- calculated by (net income after taxes)/[total assets-cash in hand-non interest bearing liabilities]. It is another efficiency test for the company
Current ratio- simply current assets divided by current liabilities. It is used to measure a company’s liquidity and its short term financial strength, it will look something like 5 or 5x meaning that the current assets are five times the current liabilities
Coverage ratio- the number of times that a company’s expense is covered by the earnings
Interest coverage- used to measure the company’s ability to pay interest on outstanding debt like corporate bond interest etc. Equal to [earnings before interest and taxes for a fiscal year]/interest payments for the same period. The higher this figure the better because it will mean that the revenues very easily cover their financial obligations n times over
Total debt/equity or gearing ratio. This measures a company’s stability. It is equal to total liabilities of the company/total shareholder’s funds. The higher this ratio the more the interest payments the firm is to pay in future as it means that the company has borrowed a whole lot of money.
Working capital per share- this measures a company’s liquidity. Calculated by subtracting current liabilities from current assets and then dividing the answer with the total number of shares outstanding (shares in the investors hands)
Earnings per share- total profits of a company divided by the total number of the company’s shares. In most cases, if this figure is growing it means that the company is growing. But investors are warned in financial books not to base their investing on only this value and that it should not be so high.
Dividend per share- total dividends paid to shareholders for the previous financial year dividend by the number of common stock outstanding
Book value per share- a company’s book value divided by the number of shares outstanding. BTW the book value is a company’s total assets – total liabilities-intangible assets like goodwill
Cash flow per share- operating cash flow- preferred stock dividends and the answer is dividend by the total number of shares outstanding
cash per share- indicates the amount of cash in the firm as compared to the number of shares outstanding. Calculated by [cash + marketable securities]/number of shares outstanding
Dividend yield- this is calculated by dividing the total dividends paid out by the current price of the stock
Dividend payout ratio or payout ratio- ratio of dividends paid out by the company to the company’s earnings in a financial year
Pre tax profit margin- net profit before taxes divided by net sales
Total debt/ total capital ratio- this one shows the proportion of a company’s debt to its total capital. It is used to measure the company’s capital structure and financial solvency
Leverage ratio(assets/equity)- this is the total assets of the company divided by the total shareholders equity. It is a measure of the company’s leverage ie the degree of utilization of borrowed money. Highly leveraged company’s place themselves in a bad place like danger of receivership or bankruptcy if they cannot pay their debts
Other key pieces of information include
Float- this is the total number of shares of a company that are available for the investing public
Shares outstanding- number of a company’s shares that are in the hands of investors
Sales(both domestic and foreign)- the amount of money in whatever currency that the company has made is selling it products
Research and development as a percentage of revenue.- Research and development in a company uses money so this ratio tries to measure the amount used in R&D as compared to revenues in a financial year.
Gross profit margin- calculated gross profit/sales *100=x% meaning that for every dollar(rupee, shilling, peso euro whatever)generated in sales, the said company has 20 cents left to cover basic operating costs and profit
EBITDA margin- the initials mean earnings before interest taxes depreciation and amortization. It is used to measure a company’s operating cash flow using its financials like the income statement and the like. It is calculated by adding depreciation and amortization back to pretax income
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